Saturday, June 9, 2012

An artist impression of Chestermere Manor, a project comprising 96 units of townhouses being marketed by Vision International Properties.

LAST week, a group of fairly young people organised a lunch at a club to promote and market some townhouses in Alberta, Canada. There are a few things about the investment propostion that comes across as rather interesting. Whether it will be profitable or not is another matter. The objective of this article is, therefore, to highlight the different types of property-investment offerings that are entering the market as a result of Asia being rather buoyant, despite the woes in US and Europe.

First, it was the first time that properties as far away as Canada are being promoted this way. Usually, agents will just opt for an advertisement. Vision International Properties did that, besides other things.

One may ask, why Canada? Seems so far away when there are properties in Britain, Australia and Singapore to choose from. Malaysians generally invest in British and Australian property because they have children studying in these countries, or because they themselves studied there. There is, therefore, the emotional and sentimental ties. As for Singapore, it is just an hour away by plane and they frequent the city state and so they decide to buy something in Singapore.

The other thing interesting about this Canadian proposition is that, the director of Vision International is a Malaysian who studied in Canada, worked in an international consultancy firm there for about a year before deciding to go full time into property investment with a partner. Virata Gamany, the Malaysian director has now decided to return to Malaysia to start a branch here, besides other branches in Singapore and China.

Thirdly, Virata, 28, is offering an investment proposition which, thus far, is fairly new to Malaysian residential buyers, to a degree.

Unlike local Malaysian agents representing foreign developers and house builders to promote an overseas property development here, which they sell to Malaysians and other investors in other parts of Asia, Virata and his partners are neither agents nor developers.

They instead bulk purchase into a project in Canada, which they then sell to Malaysians and other investors. It is very much like the Middle-Eastern investors who bought en bloc units in the KLCC area and then sold the units to other buyers at a lower rate than the developer. They are able to do this because they buy multiple units.

In the case of Vision International, it is uncertain whether the properties come at na discounted rate from the developer's price. But they will manage the property on behalf of investors.

In other words, one buy into their project, in this case, Chestermere Manor, which comprises 96 units of townhouses in Calgary, Alberta, not to stay, but to be rented out at a gross yield of between 7% and 8% a year.

He said they will help investors enter into the market easier by assisting with bank loans and legal paperwork and manage the properties and look for tenants. Investors will have to consider the cost of this list of services as it will be factored into the price of the house, or in some other ways.

A two-bedroom unit is priced at C$218,000 with a downpayment of C$76,300. Virata has put the rent at C$1,300 and a string of other fees like property tax, management fee, mortgage expense and condominium fee.

A client can exit anytime because it is a direct ownership, he says.

Virata says Canada is rather low-profiled compared with other destinations but this does not mean a shortage of opportunities. The project he is offering sits on 10 acres, of which about half will be occupied by townhouses. These will be the more affordable alternative to the more pricey three-storey landed units. Vision, he says, is buying nine blocks, of which eight blocks, comprising 96 units, will be sold to investors. They will keep the ninth for investment.

Chestermere Manor is their 19th property investment.

“Our investments are focussed on apartment and condominium units with rentals that are within the range of the average Canadian family. Such properties tend to yield better returns and are less risky,” he says.

There will be regular project updates. Currently, each of the blocks is being built at different stages with the last block expected to be completed in 2014.

Virata says this is investment proposition is neither a Reit (real estate investment trust) nor a land-banking, which had some Malaysian investors losing their life savings earlier this year.

He also suggests investors see the properties for themselves and Vision International will pay for the flight ticket.

“We find it odd that less than 5% of investors ask to see the properties and if not for us providing the return flight tickets, they do not do so.”

While Virata and his team offer a host of conveniences, a property consultant agrees that dealing with one party in this case a property investment company may seem more appealing than buying from an agent who represents a developer, and having to engage letting agents to rent out the unit.

“There is the issue of not knowing who to turn to in the event the desired situation does not materialise for whatever reason, for example, a project not taking off. In the case of having to deal with an agent who represents a developer, and a letting agents, there is a clear separation of duties and responsibilities,” he says.

While Virata's investment proposition may appeal to some, as with other property-related investments abroad, it is worthwhile to note that the low interest rates around the world today has been a major driving force for such investments.

Last week, wire service Bloomberg highlighted the dangers of Canadian housing debt levels.

Canada Mortgage & Housing Corp (CMHC), which called on home buyers to guard against taking on too much debt, cautioned buyers to exercise prudence.

“Interest rates are at historic lows and they are certain to rise in the future. In this context, it is important that they not get overextended,” a CMHC's representative says.

Bank of Canada Governor Mark Carney has said that record consumer debt loads are the biggest domestic economic risk, and housing starts reached the highest since 2007 last month.

“Strong labour market conditions will continue to drive the construction of new homes, but some diminution of the current robust pace of housing starts is expected later this year and next year,” CMHC's report says.

Housing is also being supported by a five-year mortgage rate that has been at or close to record lows this year. The Bank of Canada said last month it may need to raise its 1% benchmark overnight rate because of faster-than-expected growth and inflation.

The agency said it had mortgage insurance in force worth C$570bil (US$554bil) at the end of March, up 10% from a year earlier. Canadian law requires borrowers with less than a 20% down payment to have their mortgages insured and CMHC has a C$600bil limit on its insurance portfolio.

CMHC said in January it had begun rationing bulk insurance for lenders to keep from exceeding the limit.

All these represent red flags that potential Malaysian investors need to be aware of. It is difficult to monitor an investment that is so far away, and laws and legal system may be different and the way things are done may vary considerably.

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